It’s been a rollercoaster month for investors as the Federal Deposit Insurance Corp. (FDIC) has shut down several banks and investors fear the risk could spread across the sector.
Times like these can be nerve-wracking for investors. The S&P500 is down about 6% over the past month. However, it’s important to view another market decline as an opportunity to buy shares in quality companies at lower prices.
Companies that can survive short-term volatility and have excellent long-term prospects are ideal. Here’s why Visas (v 0.50%), Intuitive (INT 2.91%)And NVIDIA (NVDA 5.42%) are all solid stocks to add to during a market downturn. Let’s find out a little more about these three stocks.
1. Visa dominates payments and has a robust balance sheet
Visa helps customers move money around the world with its debit cards, credit cards, and other payment methods. When it comes to processing payments, nobody does more business than Visa. In 2021, Visa processed 244 billion transactions totaling $13.5 trillion. That’s over 75% more volume than the closest competitor, MasterCard.
Visa’s business is relatively small, meaning it doesn’t spend much on equipment or inventory. As a result, it has hefty profit margins that have averaged over 45% over the past decade. It also generated $17.7 billion in free cash flow last year, which is money it can use to pay down debt, reward shareholders with dividends and stock buybacks, or invest in the company.
V Profit margin data from YCharts
It has been resilient over the past year as inflation has been heating up. In its most recent quarterly results, it processed 10% more transactions and grew net revenue by 12%. If we enter a recession, consumer spending could slow and hurt Visa’s bottom line. However, it has a robust balance sheet and should be able to weather short-term headwinds.
Companies with less debt face less risk of default or bankruptcy during an economic downturn. Visa’s debt-to-equity ratio is about 0.56, showing that it doesn’t use a lot of debt to fund its operations. The balance sheet also shows $13.3 billion in cash and cash equivalents, giving the company ample liquidity to weather a downturn.
2. Intuit sees significant opportunity in personal finance
Intuit provides consumers and small businesses with technology to manage finances, save money, pay off debt and prepare for taxes.
The small business and self-employed segment generates half of its sales. This segment includes QuickBooks, which small businesses use to manage finances, track time, and process payroll and other payments. The consumer segment accounts for another 31% of sales, led by TurboTax software and assisted tax preparation.
Every year, whether we like it or not, we have to pay our taxes, and Intuit’s best-in-class tax platform gives it resilience in a downturn. TurboTax is a big player in the tax preparation space, according to Bloomberg, with a 73% market share in 2021. Also, Intuit’s gearing is modest at 0.45, another positive for the company when we hit a recession.
Intuit estimates that its core addressable market is $81 billion, which also includes the TurboTax and QuickBooks platforms. It also sees a tremendous opportunity in the US, which has a total addressable market of $253 billion. This market includes personal finance solutions such as the Mint platform and financial product recommendation engine and credit tracking platform Credit Karma.
Intuit grew its net income by 13.7% year over year in its most recent quarterly results, led by growth in its small business and self-employed and consumer segments. Intuit’s robust business and long-term growth opportunities make it another solid stock to add to in the next market downturn.
3. Nvidia supplies the hardware for most of today’s revolutionary technologies
Nvidia develops graphics processing units (GPUs), the technology that makes video game graphics as advanced as they are today. Some of today’s most innovative technologies leverage their GPUs, including artificial intelligence (AI), robotics, metaverse, and cryptocurrency mining. Due to the wide usage of its products, Nvidia has several levers that give it resilience in downturns.
Last year, for example, it struggled with declining consumer spending on gaming graphics cards, and gaming sales fell 27%. However, data center revenue rose 41% as customers flocked to its AI cloud service offering from Nvidia. Its cloud service allows customers to leverage Nvidia’s infrastructure to train AI models, and customers sign multi-year contracts for the service.
Image source: Getty Images.
Another area that saw sales grow 60% was automotive sales. Here it benefited from strong demand for its self-driving and electric vehicle products. Ultimately, Nvidia’s $27 billion in revenue was flat year-on-year.
A near-term headwind for the company is the build-up of graphics card inventories. Last year, the company had to write down the value of unsold inventory, which hurt adjusted earnings by 25%. Nvidia will have to work off these inventories, which could weigh on earnings in the short term.
However, its long-term potential remains excellent. According to a report published by Allied Market Research, the size of the GPU market is expected to reach $200 billion by 2027 — a compound annual growth rate of 33.6%. Nvidia estimates its total addressable market at $1 trillion, including $300 billion in automotive and another $300 billion in chips and systems using its hardware.
Nvidia’s GPU dominance has positioned it well for the next decade and beyond, making this stock a solid buy if the market continues to decline.
